Economics of staffing Building service businesses through dip reinvestment crmvendors.wordpress.com

Economics of staffing Assumption The intent of this model is to be a rough guide on heads; to spot trends and make forward looking decisions. As such, its acceptable to work from some known data points while making a couple of key assumptions… crmvendors.wordpress.com

Economics of staffing Time Revenue / Output Demand Supply Supply = our capacity as defined by total # of hours our FTE’s can produce (have available) at any given time Demand = the quantity of hours demanded by our customers at any given time Supply & Demand crmvendors.wordpress.com

Lowest cost resource for producing capacity are FTE’s. Therefore… The staffing model that maximizes margin will be the one That can maximize FTE’s Economics of staffing Case for FTE’s crmvendors.wordpress.com

Economics of staffing Factoring costs in terms of revenue Average Salary (known) - $100,000 Apply overhead costs (benefits, payroll taxes, etc.) – 127% = $127,000 (27% being fairly standard for white collar professional services) Possibly add in exceptional costs, maybe for travel costs, business development, etc. and add to total cost basis – 10% , +$10,000 = $137,000 Apply margin targets – 50%, $137 / .5 = Target Revenue Capacity = $274,000 Intent is to develop average revenue capacity for your heads where revenue capacity is defined as the amount of revenue governed by margin and salary assumptions per head needed to generate your target profitability. crmvendors.wordpress.com

Average Salary (known) - $100,000

Apply overhead costs (benefits, payroll taxes, etc.) – 127% = $127,000

(27% being fairly standard for white collar professional services)

Possibly add in exceptional costs, maybe for travel costs, business development, etc. and add to total cost basis – 10% , +$10,000 = $137,000

Apply margin targets – 50%, $137 / .5 =

Target Revenue Capacity = $274,000

Economics of staffing Time Revenue / Output Demand Supply When demand exceeds supply we have a shortage. To meet demand, we must therefore contract expensive SR or CW labor. Demand = the quantity of hours demanded by our customers at any given time When supply exceeds demand we have excess capacity. Factories stand idle. Inefficiencies crmvendors.wordpress.com

Time Revenue / Output Demand Supply Economics of staffing Equilibrium The idealized, most efficient system is one where supply is perfectly matched to demand. In other words, zero excess and zero shortage crmvendors.wordpress.com

Economics of staffing Different Stories crmvendors.wordpress.com Revenue 1 $ 351,490 2 $ 498,661 3 $ 314,380 4 $ 134,713 5 $ 193,480 6 $ 506,692 7 $ 351,490 8 $ 498,661 9 $ 314,380 10 $ 134,713 11 $ 498,661 12 $ 506,692 $ 4,304,014 Revenue 1 $ 2,000,000 2 $ - 3 $ - 4 $ - 5 $ - 6 $ - 7 $ - 8 $ - 9 $ - 10 $ - 11 $ - 12 $ 2,304,014 $ 4,304,014

Economics of staffing Same Results crmvendors.wordpress.com Revenue 1 $ 351,490 2 $ 498,661 3 $ 314,380 4 $ 134,713 5 $ 193,480 6 $ 506,692 7 $ 351,490 8 $ 498,661 9 $ 314,380 10 $ 134,713 11 $ 498,661 12 $ 506,692 $ 4,304,014 Revenue 1 $ 2,000,000 2 $ - 3 $ - 4 $ - 5 $ - 6 $ - 7 $ - 8 $ - 9 $ - 10 $ - 11 $ - 12 $ 2,304,014 $ 4,304,014

Economics of staffing Leveled Capacity Mathematically, what this regression does is find the optimal, averaged output over a period of time. In other words, the space above the line equals that below. crmvendors.wordpress.com

Economics of staffing Overtime To increase output over the regression line, FTE’s will have to work overtime. Of course, output can also be increased by adding CW’s. crmvendors.wordpress.com

Economics of staffing Accounting for CW The greater the area between optimal and actual, the more you need to plan for CW This can be accounted for by adjusting the optimal level down. In practice, take an anticipated CW budget and apply it as a plus-up against your cost factor crmvendors.wordpress.com

Economics of staffing Time Revenue / Output Demand Supply The key is to leverage the available resources in the dips to re-invest in new areas that are of importance to your most highly valued customers. Another option would be to invest in ideas or capabilities that help you differentiate of improve your sales process. Leverage the Dips To start, there must be the assumption, and cash flow management in place to account for the dips. crmvendors.wordpress.com

Economics of staffing This may not quite be Seth Godin’s definition of the Dip, but the underlying logic is similar. Dips The key is to leverage the available resources in the dips to re-invest in new areas that are of importance to your most highly valued customers. Another option would be to invest in ideas or capabilities that help you differentiate of improve your sales process. Your project management approach, therefore, must be flexible enough to apply resources on an irregular basis against a continually progressing project. crmvendors.wordpress.com